Adam Smith and the Pin Factory
johnkay.com
johnkay.com
https://fee.org/resources/i-pencil/
Smith is describing the division of labour in an elegantly and interesting way. Read uses the same kind framing around a familiar object to say:
If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing.
I'll take Smith.
Milton Friedman described the pencil in his Free to Choose series: https://www.youtube.com/watch?v=67tHtpac5ws
And in 2012 CEI made a movie version: https://www.youtube.com/watch?v=IYO3tOqDISE
I know the rules here are such that we don't talk about voting up/down, but I have no idea why you were voted down. Your post is on-topic and informative. I didn't know their was a book version or the CEI movie version, I had only watched the Free to Choose series. Thanks for sharing.
http://crookedtimber.org/2011/04/16/i-pencil-a-product-of-th...
Food safety regulation, worker and environmental protections, antitrust laws - they did not come from theory.
No. The pencil is built because of the incentives (read: potential for profits) for each of the people involved. The lighthouse keeper maintains the lighthouse to earn a salary. The truck driver earns his/her paycheck based on milage&tonage hauled. The entrepreneur bought the rights to log the land because he/she believed he could make a buck. Etc.
I, Pencil is not a story of cooperating for social/feel-goody sake - but rather for individual incentives all along the way. The million people involved in making that pencil - none of which knows any of the others.
I, Pencil is a story that shows government intervention is not needed to build the pencil.
I never claimed otherwise, so that 'no' is unnecessary.
> I, Pencil is a story that shows government intervention is not needed to build the pencil.
No-one claims government intervention is needed to build pencils or more complex goods. But it is needed to, for example, prevent corporations from polluting rivers with mercury: https://en.wikipedia.org/wiki/Minamata_disease
The whole story is nothing more than an attack on an implied strawman.
I think when it came out, the world was a very different place. A large chunk of the world lived in command economies (USSR, China, etc...), and even in the west, where WWII and the massive government involvement in the economy was a very recent memory, the notion that someone could just calculate all the pieces better than the market probably wasn't quite so foreign as it seems today.
The pencil today, as are many other products, is produced by the free market and many many entities along the way. Focusing on whether companies vertically integrate miss the bigger point that it is free markets and Capitalism which provide us with the world we have behind us in the Western world.
At the same time, it's also nice to have some rules and regulations and people who enforce them so that, say, one of the suppliers tries to start using toxic ingredients in the pencil's paint, and gets thrown in jail for it.
[0] https://en.wikipedia.org/wiki/Pencil#Discovery_of_graphite_d...
Not just building pencils but also delivering the mail as one given example, in fact it explicitly broadens the scope of its argument to “...tens of thousands of other things”. ‘I Pencil’ is explicitly an argument against the need for government intervention and planning in general, as it makes very clear at the end - “The lesson I have to teach is this: Leave all creative energies uninhibited”.
It is an argument that creating pencils and many other essential activities can, and implicitly should occur “...in the absence of governmental or any other coercive masterminding”.
As deogeo pointed out in reality governmental masterminding made many clear and beneficial contributions to the efficiency, safety and sustainability of the pencil’s manufacture. It’s argument that no masterminding occurred is in practice not strictly true. We can argue about how necessary such contributions are, but I don’t see how we can argue they are irrelevant to the discussion when ‘I Pencil’ so clearly broadens the scope of its claims.
If I Pencil were to stick to being an eulogy to creative market forces that would be fine. That aspect of its exposition is well reasoned and compelling, but it completely fails to address the issue of externalities. We don’t need government or regulation to have pencils, we need it to also have other things which market forces frequently despoil or fail to provide. Worker safety, sustainable natural resources, etc. That’s what deogeo is talking about.
It's demonstrably not true for large game-changing R&D projects which open up entirely new sectors for innovation.
There's also a neat dispute on the pin factory analysis I thought I'd share. Kevin Carson, drawing on work by Steven Marglin, argued that the pin factory example doesn't prove what Smith thinks it did, because it neglected the possibility of a single worker batching each step himself and reaping the same benefits[1]:
>Marglin took Adam Smith's classic example of the division of labor in pin-making, and stood it on its head. The increased efficiency resulted, not from the division of labor as such, but from dividing and sequencing the process into separate tasks in order to reduce set-up time. This could have been accomplished by a single cottage workman separating the various tasks and then performing them sequentially (i.e., drawing out the wire for an entire run of production, then straightening it, then cutting it, etc.).
George Reisman, in a Mises Institute article, disputed these claims [2], saying that you can't get the enhanced efficiency this way because of set-up time, tool duplication, the requirement to do it at scale to make a profit:
>If, for example, there were six distinct steps entailed in pin making, then instead of six workers working side by side continuously,in one factory, each continuously using a definite tool or piece of equipment, we would have, under cottage production, six cottage workers each performing a large volume of a given operation, while the tools and equipment required for the other five operations remained idle. His output from any given operation would also then remain idle until he finished that operation and turned to the next operation.
>The clear implication is that under the arrangement of cottage production so beloved of Carson and Marglin, the six workers would need between them thirty-six sets of tools and equipment instead of only six such sets and would have an unnecessarily large volume of partially finished product on hand at any given time. ...
>In sum, cottage production would entail a tremendous waste ofcapital and be enormously inefficient, ...
[1] http://www.mutualist.org/sitebuildercontent/sitebuilderfiles... p. 166
[2] https://cdn.mises.org/20_1_5.pdf p. 7 in PDF
https://www.instapainting.com/blog/company/2015/10/28/how-to...
Different forms of manufacturing have different constraints. Trying to generalize everything from a pin-factory (which initially wasn't even abstracted correctly) seems like navel gazing to me.
In the case of painting: it seems like creating a whole slew of blue-paint so that you can do stroke#465 on your 10,000 mass-produced oil paintings is more efficient than spurting out just a little bit of blue paint for stroke#465, then another paint for stroke #466, (etc. etc.)
Its more efficient to perform that individual stroke 10,000 in a row, more efficiently using your paintbrush, paint, and other tools, before moving on to stroke #466.
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Now I don't know much about 1700s based pin-making, but apparently Adam Smith didn't either. :-) I'm going to guess that every mass-production line is setup slightly differently, and will have slightly different "parallelization" mechanisms.
The factory workers are leaving underutilized what is by far the most useful tool in the entire process, the human brain.
A cottage worker has sight over the whole process and is directly empowered to make adjustments to it that increase efficiency or improve the product.
The factory worker is helpless to do anything but repeat a repetitive act as according to orders, leaving their mind to rot.
An except from later in the book that I think aligns with your point:
> the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life... But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
It's worth noting that Smith's work was a prelude to that of, for example, Ricardo on the pricing of land (labour/capital) and Marx on ownersip of land/capital.
I think it matters that the examples are untrue. It's quite easy to craft a nice story that illustrates a point. The story is more influential than mere statements because it doubles as proof. Thus the student may come away thinking he or she not only knows a fact but now that they can prove it. This will make it much harder to correct if false.
No, the benefits of division of labour are not remotely controversial.
Does everyone at a company do financial planning, marketing, hr, write code devops?
No, rather software people write/support software.
Finance people do finance.
Marketing people do marketing.
Even in factories - are almost no products these days assembled from start to finish by the same team.
There might be some cases wherein there's a decision to be had, but generally no. There's no controversy here.
Finally - Smith's story is still valid. Making pins faster using division of labour is still probably valid.
The 'truthiness' of the story isn't even the issue - the issue is the 'impact'. A single labourer might be able to do 'all the parts of the pin' by doing a different task each our of the day. But for more complicated processes, wherein there's real skill involved ... not so much.
Division of labor is, not entirely coincidentally, also often disliked by the laborer.
It's also worth noting that each of Adam Smiths pin workers were each highly skilled. They each had to be trained, not just in their particular task, but in how to work with the other pin makers.
There's impressively little biographic information about Smith, and certainly very little by way of records from himself (letters, journals), other than his books, as he ordered and witnessed the destruction of his personal papers shortly before his death. Much discussion about Smith's life is conjecture or assembled from remaining fragments, either recollections of others, or his (very rare) letters. Smith was a poor correspondant, and left few of the latter, either.
The one near-contemporaneous biography of which I'm aware and familiar is that of Dugald Stewart, published in 1793:
http://assets.press.princeton.edu/chapters/s10573.pdf
Some notes on that by Gavin Kennedy, a modern Smith scholar, who died this past April:
https://adamsmithslostlegacy.blogspot.com/2014/02/dugald-ste...
On the whole matter of the pin factory: as enduring and (to some) endearing as the anecdote is, what's struck me is that few discussions of the Industrial Revolution attribute it to the simple division of labour. Rather, it's the consequence of mechanisation of production, first through water power, and following about 1800, steam. You'd think Smith might have been aware of this, as Newcomen's "atmospheric engine" was 65 years old at the publication of Wealth of Nations, and James Watt had been working on his own enhancements since 1763, though true, he didn't release a commercial product until 1775, the year before Wealth was published.
But Watt, like Smith, was a Scottsman. Surely the two would have know of each other? After all, both were in Edinburough.
Well, as it turns out, they did. Watt had ... some degree of difficulty ... in establishing himself professionally in Edinburough (the degree of interference from the blacksmiths' guild, the Hammermen, is displuted), and gained stability through a position at the University of Edinburough, in part through the intercession of Smith himself, in 1757, and the two were friends. Watt worked on a Newcomen engine at the University, that being the basis of his own improved designs, beginning in 1763.
The bulk of the commercial significance of steam didn't occur until after the publication of *Wealth of Nations, with about 500 engines existing in 1800, at the expiry of Watt's (previously extended) patent, and after Smith's own death. But if we're going to credit Smith with so much insight over the field of economics, it's peculiar to let this specific, and gargantuan, lapse simply slide.
The full theory of prices is only explained by Marx in the context of competing capitals, and the full development of M-C-M', but Marx does clearly accord correspondance between values and prices, even if they're not the same thing, and they're at different levels of abstraction. Marx does offer an argument for why labour is taken as the substance of value (and why socially necessary labour time is its magnitude) - and it's all developed further in the analysis of money. Yes, "labour" doesn't correlate with price in Marx's schema, but the "amount" of abstract labour, determined by the socially necessary labour time required to reproduce a commodity, does.
Shaikh and Tonak show that in the case of freely reproducible commodities, excluding things such as natural resources and land (covered in the theory of rent instead), some empirical research does show correspondance between labour-values and prices in subsets of the economy where it can be measured.
Marx's theory of exploitation requires a correspondance between wages (as money) and value (the product of the labour process). It wasn't as though Marx saw an inconsistency and ran with the theory anyway. Unfortunately for his detractors, the same arguments since Bohm-Bawerk have been repeated since they were made despite adequate refutation by those who hold to Marx's "LTV".
The problem here is that we're talking about Smith's LTV and not Marx's. Marx may provide his own reasons for believing in the LTV but he disproved Smith's. So the fact that Marx had these reasons are irrelevant if we're trying to justify Smith's adherence.
Though, it is worth pointing out Marx did develop his LTV in part by reading the likes of Smith and Ricardo. The reasons he gives for the LTV in Capital are absent in A Contribution to the Critique of Political Economy in which he merely takes LTV as a given. Actually, that's not quite right, he quotes Smith, Ricardo, and Franklin among others in support of LTV so it's my conjecture that he in fact did see an inconsistency and run with the theory anyway. It was only later in his career that he felt the need to justify that decision.
Of course, but his quotation is both praising and damning; he believed that he resolved the issue with the dual character of labour power, a qualitatively special commodity, to preserve the integrity of the theory, which previously failed to explain the origin of profits in a capitalist economy. He takes his critique of political economy from the rare gems of insight developed previously (by Smith and Ricardo). His criticism was that the theory as developed in classical political economy is inconsistent, but not inconsistent in the dimension you earlier pointed out - that prices do not match up to labour values. He took that part for granted.
Smith's work has holes, at least according to Marx, but the insight he developed, labour being the substance of value (more precisely, exchange value) was crucial to Marx's development of the theory. My point is that the theories can't be lumped together, since Marx presents such a radical break from Ricardo (and thereby Smith).
1. I agree absolutely that Smith's principle value is as an early (though not the first) notable and thoughtful (though often mistaken) commentator on the nature of political oeconomy. As such, he either made several interesting original observations or conclusions, or promoted those of others (notably the Physiocrats, particularly Quesnay, and somewhat famously and controversially, James Steuart (not to be confused with James Mill or John Stuart Mill).
2. He's also been both mischaracterised (the "invisible hand" myth), and curiously ignored: his many cautions about monopolies, joint stock corporations, labour organisation, and the fundamental welfare of basic citizens. To that extent, reading Smith directly is a useful countermeasure to much spin that's been applied since.
3. On the labour theory of value, Smith's observations strike me as more valuable than many critics (particularly those inspired by opposing anything suggested by his mid-19th century German-British antecedent) give proper credit for. I'd argue that the Marginalists' focus on just marginal market cost and value is also fundamentally flawed, though frequently behaviorally accurate, at least in the short term.
Smith's discussion of prices, of the prices of various types of goods (commodities, rents, interest, labour, assets (coinage, though this can be extended) and, coached as "expenses of the sovereign", public goods, is actually quite informative, though it requires some interpretation.
In particular, Smith advances an idea largely ignored since the Marginal Revolution of a natural price, from which the actual observed market price may be higher, lower, or equal to:
When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price....
The actual price at which any commodity is commonly sold is called its market price. It may either be above, or below, or exactly the same with its natural price.
https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...
Smith does write that "Labour was the first price, the original purchase-money that was paid for all things," but that's possibly better understood on several bases:
- Where all individuals are self-sufficient, this is fundamentally the case. Cost is time.
- Where there is a means of exchange for the labour of others, paying for that labour is the first and most evident, or manifest, cost.
- But labour is clearly not the only input, and more complete and accurate cost-based accounting systems reflect this. When Alexander Hamilton Church developed the foundations of what became modern cost accounting, his entries reflected the extant purchasing practices of manufacturers, whose major expenses were labour, raw material inputs, and plant capital.
https://archive.org/details/properdistribut02churgoog/page/n...
https://en.wikipedia.org/wiki/Alexander_Hamilton_Church
(And yes, related to the other A.H.)
The question of value in economics is still one that bedevils it, and for which a suggestion of Marx has excellent merits: what's discussed as "value" is actually three distinct constructs:
1). Cost. The requirements of poduction, including labour, rents, capital, and fully-accounted natural resources.
2). The exchange price, or ratio in some maximally-fungible commodity (usually money or an equivalent) by which one party is entirely willing to exchange to another.
3). Value. Most specifically use value or net benefit, which should almost certainly exclude merely short-term compulsion (viz: drug addiction and social media FOMO), but rather some long-term lifetime benefit or quality measure. Healthcare quality-adjusted life years would be an example, or Leslie White's Law of energy throughput as a measure of cultural development.
Note that Smith contradicts his own price theory when discussing rents:
"Rent, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land."
https://en.wikisource.org/wiki/The_Wealth_of_Nations/Book_I/...
That is: rents are not based on the labour required to provision them, but on the added labour value which can be extracted by way of rents.
So clearly there's more than just labour at play, even within Smith.
The extension of the "cost-of-inputs" model I find most attractive -- that's an "all costs are opportunity costs", extends beyond just presently-realised costs, ultimately taking into account natural resource costs, as energy- or time-of-formation, particularly at a given rate of utilisation vs. replenishment, against total utilisation time, which gives rise to significant revisions of pricing of exhaustible resources (or sinks) well beyond the clearly flawed visions of David Ricard, L.C. Grey, and Harold Hotelling.
But this is a great comment.
>When Adam Smith proclaimed that all our actions were motivated by self-interest and the world turned because of financial gain he laid the foundations for 'economic man'. Selfish and cynical, 'economic man' has dominated our thinking ever since, the ugly rational heart of modern day capitalism. But every night Adam Smith's mother served him his dinner, not out of self-interest, but out of love.
>Even today, the unpaid work of mothering, caring, cleaning and cooking is not part of our economic models. All over the world, there are economists who believe that if women are paid less, then that's because their labour is worth less.
Funny that someone should write that, because Smith wrote a book called Theory of the Moral Sentiments in which he argued the exact opposite.
1) It's very obvious that none of the adults I knew as a child had read more than a few isolated quotes from Wealth of Nations or the Bible. None of them had even the slightest idea what sort of content either of those books contained, or what they were like in tone or in substance. 99% of what I grew up hearing about both books was completely made up.
2) Wealth of Nations presents a very chipper and optimistic sense of entrepreneurship that 99% of people in the world of business today would consider naive at best. If Adam Smith had written that book today, he would be laughing stock.
> 1) It's very obvious that none of the adults I knew as a child had read more than a few isolated quotes from Wealth of Nations or the Bible. None of them had even the slightest idea what sort of content either of those books contained, or what they were like in tone or in substance. 99% of what I grew up hearing about both books was completely made up.
> 2) Wealth of Nations presents a very chipper and optimistic sense of entrepreneurship that 99% of people in the world of business today would consider naive at best. If Adam Smith had written that book today, he would be laughing stock.
Things make more sense with the view that The Wealth of Nations is meant to be satirical.
The parent is right, though, that it's not the Bible of the Free Market that so many people who haven't read it seem to think it is. While it does argue against the older regulatory economic regimes, it's not some ancap laissez-faire anti-government screed.
However, it seems I am not alone in this view.
> "Indeed, Smith suspected that those quickest to sing his praises had failed to understand the main arguments of his work. He later described The Wealth of Nations as a ‘very violent attack … upon the whole commercial system of Great Britain’. Despite this, his vocal political cheerleaders in Parliament continued to prop up the very system that Smith was railing against."
https://aeon.co/essays/we-should-look-closely-at-what-adam-s...
A book a really enjoy on this topic is "The Mind and the Market" by Jerry Z. Muller. There are other history of economic thought books, but that one is my favorite.
I can say with certainty that your statements don't apply The Wealth of Nations. Its prose is of impeccably high quality.
Did editors exist 100 years ago? Erm, yes they did? According to Merriam Webster, the term was used in its current acception in 1649. And the job done by editors could arguably have existed for a much longer time.
"Please don't post shallow dismissals, especially of other people's work. A good critical comment teaches us something."
There's no such thing as "pure" Western civilization, nor is there such a thing as a "pure" culture, in the sense of being uninfluenced by lateral cultural transfer. Even Japan, which is often held up as an example of a "unique and homogeneous" culture is deeply influenced by its neighbors (particularly Imperial China) and centuries of interaction with the West.
But in terms of broad influences - Christianity, Greek and Roman influence, Shakespeare, common linguistic and political roots, etc, I think it's clear that "Western civilization" does at least exist in a broad sense.
There just is no historical separation between our societies for the obvious reason that they’re geographically adjacent and have been in continuous contact, unlike say “The West” and India or China or the Americas.
European philosophy was explicitly founded when medieval universities were set up like Islamic schools and teaching Averoes and Avicenna. Before that, Aristotle and Plato had been all but lost to the Latins. Chemistry is from “al-quemi” and algebra is “al-jebra”.
It’s really only post-fall of the Ottoman Empire that you see even a notional sense that our civilizations are disconnected. Splitting them now is just pro-war propaganda being laundered through bad history.
And you're right, Islam shares a common heritage with Christianity and Judaism (despite being conspicuously absent from the "Judeo-Christian" moniker) so it makes no sense to consider the influence of only two.